Solar Foods H1'25: Feedback from the field seems encouraging

Translation: Original published in Finnish on 08/15/2025 at 07:30 am EEST

Source: Inderes

Solar Foods' H1 figures were largely in line with our expectations, although the cash flow was stronger than expected, supported by unusually large grants. During H1, Solein's commercialization has progressed significantly with the announced supply agreements, but especially the letters of intent related to the capacity of the upcoming 02 factory, and the company's updated estimate of capital needs for the strategy period, increase the credibility of the growth story. We raise our target price to EUR 5.3 (was EUR 3.3) and reiterate our Reduce recommendation.

The cost structure in H1 was largely in line with expectations

Solein's commercialization progressed well during the review period as Solar Foods announced a 1.3 MEUR supply agreement with US-based Superb Food and a 0.2 MEUR conditional supply agreement with Italian KelpEat. We believe these agreements validate partners' interest in Solein at good price points. These agreements did not yet have an impact on the figures for the review period, and the revenue generated from the sale of test batches remained marginal. More central than supply agreements are the letters of intent related to the capacity of the future industrial-scale O2 plant, which already cover 50-60% of the production facility's planned production capacity. Large food industry partners such as these companies are critical for the investment case, as they bring visibility to Solein's industrial scale demand and can participate in enabling the 02 factory investment through various forms of financing. During the review period, Solar Foods' cost structure was broadly in line with our expectations, and the -5.4 MEUR profit before taxes met estimates. The company's cash flow was, however, stronger than we expected due to a larger-than-anticipated IPCEI grant sum attributable to the review period. This effect is, however, purely timing-related, as the approved 44 MEUR portion of the grant and the 110 MEUR maximum amount remain unchanged.

Revisions to long-term investment estimates

In connection with the release, our near-term estimate revisions remained minor, but the company's updated plans for the implementation of the production facility led to changes in our longer-term investment estimates. According to the updated estimate, the company's total capital requirement for the 2025-2030 strategy period decreases from 325-345 MEUR to 180-200 MEUR, if it utilizes partner suppliers in its O2 production facility. We believe this would necessitate outsourcing functions such as facility ownership and maintenance, which we find natural, considering the company's limited investment capacity. In connection with the report, we cut Solar Foods' investment needs for future factories and increased the share of operating costs in our estimates to better reflect the updated investment plan utilizing partner suppliers.

Development has undeniably been positive on the commercialization front, but the risk profile remains high

Due to Solar Foods' significant investment needs and cash flows being far in the future, the range of outcomes for the investment case is exceptionally wide, which is also reflected in our fair value range. Driven by the decreased investment need and slightly lower cost of capital, our updated fair value range for the share is set at 1.1-11.0 EUR (was EUR 0.8-7.5). Due to Solar Foods' early development stage, the news flow and the sentiment surrounding the stock will determine the share price development in the short term, but during 2025, the development has undeniably been positive, and we believe this has slightly decreased the risk profile, as the news validate the demand for Solein, especially among industrial-scale customers. Solar Foods' short-term liquidity risk and the financing need related to the 02 factory overshadow the investment case for now, but even one larger food industry customer could remove the uncertainty related to the investment with their commitment.